Tata Power set to buy Welspun’s wind, solar assets valued at $1.45 billion

Tata Power, the country’s largest integrated power utilities company, looks set to acquire the renewable energy assets of the diversified Welspun Group, valuing the 1152 MW or 1.15 GW portfolio of operational and almost ready solar and wind farms at close to $1.45 billion, inclusive of its debt, said three people directly involved. Both sides are in final stages of negotiations and hope to sign a definitive share sale agreement in the next 2-3 weeks to conclude the largest buyout in the sector so far, save any last minute hiccups. The Tata offer has trumped the closest competing proposal from a consortium of IDFC Private Equity and Finnish clean energy multinational Fortum by at least 15-20%, added these sources. The other serious contender in fray was Greenko Group Plc, a Hyderabad based renewable company controlled by GIC, the sovereign wealth fund of Singapore. “Tata Power has emerged as the frontrunner among all the other potential suitors valuing the equity of the Welspun platform at Rs 3700 crore. They are willing to take over the operating assets as well as the pipeline ” said one of the sources on condition of anonymity as the discussions are still in private domain. Welspun Renewables Energy Pvt Ltd (WREPL), part of the $3 billion Welspun Group, is one of the largest renewable energy firms in India, operating 685 MW of wind and solar energy projects across eight states. Another 200 MW is expected to get commissioned by this June end while a further 257 MW is due by October-November of this year. The business also has around Rs 5900 crore ($893 million) of debt but not entirely drawn down yet as many projects are at different stages of completion. This makes the enterprise value of the business at Rs 9600 crore ($1.45 billion). Welspun Renewables is a 100 per cent subsidiary of Welspun Energy which in turn is co-owned by the listed Welspun Enterprises. BalKrishna Goenka, chairman Welspun Group and serial entrepreneur Vineet Mittal who is also the Managing Director of the business are the other key shareholders along with a clutch of foreign financial investors. “Welspun would have invested Rs 2050 crore of equity once the entire portfolio of 1.1 GW was operational. So at this valuation, they are 1.8 times book value — phenomenal for an unlisted player with some project risks. Most of the listed peers are trading at 1.3 to 1.5 times book value. Anything above Rs 3000 crore is a premium,” said a CEO who made a competitive offer. Welspun valuations also translate to a per megawatt cost of Rs 8.33 crore as against the prevalent replacement cost including finance costs that ranges from Rs 6.5-Rs 7 crore per MW, argues some analysts tracking the sector. Last year, Tata PowerBSE -0.57 % created a separate 100% arm Tata Power Renewable Energy Limited (TPREL) to own and operate all green energy assets of the parent company. The current installed non-fossil fuel capacity is 1674 MW, about 18% of its total portfolio. This includes 573 MW of hydro, 555 MW of wind, 60 MW of solar and a potential 240 MW of geothermal power. When contacted Tata Power spokesperson said: “The Company does not respond to market speculations. We maintain that we are evaluating various options to create shareholder value.” A Welspun spokesperson did not respond to ET’s questionnaire till the time of going to press. Vineet Mittal denied that the business was being sold to Tatas. Sources say, Tata Power may tap the joint venture platform that it is in the process of formalising, together with ICICI Venture, Canada’s second largest pension fund Caisse de depot et placement du Quebec (CDPQ) and the sovereign wealth funds State General Reserve Fund of Oman (SGRF) and Kuwait Investment Authority (KIA) to fund this acquisition. JM Financial is the advisor for Tata Power. Inaugurating a 44 MW wind park in Madhya Pradesh last week, Anil Sardana, MD & CEO, Tata Power said, “We are in constant look out for similar opportunities in respect of wind and solar plants. This is yet another step towards the Company’s commitment to sustainability and contribute towards building the nation, stronger.” The sale process will help Welspun Group free up capital to focus on its core businesses which includes large diameter pipes, home textiles and infrastructure. To deleverage the group balance sheet, it sold its sponge iron making unit to JSW Steel in 2014 and two ready-to-build coal fired power plants to the Adani Group. In the past, it had also tried to raise funds for its renewable energy business through an IPO, a business trust or even an yield co in the US for its operating assets, but none of those plans fructified which eventually triggered a sale process late last year with a formal mandate given to Barclays to find a buyer. The Welspun sale process had also seen interests from Singapore’s Sembcorp and Spanish utilities major Iberdola. ET in its November 30th edition was the first to report that the business has been put on the block. Interestingly last October, Welspun Renewables received $617 million in funding through a combination of debt and equity infusion by the promoters, existing and new investors. The existing investors of Welspun Renewables include General Electric Co.’s unit GE Energy Financial Services and the Asian Development Bank. The plan then was to aim at a 5 GW combined capacity between wind and solar projects. India currently has 22 GWs of ready wind energy and over 5 GW of solar capacity. But the Narendra Modi government has set an ambitious target of setting up 100 GW of solar and 60 GW of wind energy capacity by 2022 to lower the country’s dependence on coal fired electricity. “Deep pocket global players like Fortum, Softbank led SB Energy or PE backed players like ReNew Power Ventures have made the solar sector very competitive, driving down tariffs from Rs 10.95/kilo watt hours in December 2010 to Rs 4.34/kwh that we saw this January. This is turn have squeezed equity returns to a low 6-13% depending on cost of debt. Groups like Weslpun have taken a call that this is the best time to monetise their sizeable portfolio at a significant premium,” said a Mumbai based lawyer with direct knowledge.